A Good Start in Enforcement


2/9/09: During a speech at the SEC Speaks conference last week, new SEC Chairman Mary Schapiro announced the end of two policies of former Chairman Chris Cox in the Enforcement Division.

First, she has ended the two-year "penalty pilot" experiment. The staff will no longer be required to seek advance approval of penalties from the Commission in connection with settlement discussions. Second, she is moving back to routine review and approval of formal orders, to ensure that enforcement investigations can move forward more quickly.

Here is an excerpt from Chairman Schapiro's speech:

As a first, but significant, step in empowering our Enforcement staff, I am this week taking action to end the Commission's two-year "penalty pilot" experiment, which had required the Enforcement staff to obtain a special set of approvals from the Commission in cases involving civil monetary penalties for public companies as punishment for securities fraud.

In speaking to our Enforcement staff, I've been told that these special procedures have introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed.

At a time when the SEC needs to be deterring corporate wrongdoing, the "penalty pilot" sends the wrong message. The action I am taking to end the penalty pilot is designed to expedite the Commission's enforcement efforts to ensure that justice is swiftly served to those public companies who commit serious acts of securities fraud.

Another immediate change I am putting in place to bolster the SEC's enforcement program is to provide for more rapid approval of formal orders of investigation – the permission slips given out by the Commission that allow SEC staff to use the power of subpoenas to compel witness testimony and the production of documents. When I was a Commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the Commission or by "duty officer" – a single Commissioner acting promptly and on behalf of the entire Commission.

Today, however, many formal orders of investigation are made subject to full review at a meeting of all five Commissioners, necessitating that they be placed on the calendar sometimes weeks in advance. In investigations that require use of subpoena power, time is always of the essence, and every additional day of delay can be costly. To ensure that subpoena power is available to SEC staff when needed, I've given direction for the agency to return to the prior policy of timely approval of formal orders by seriatim approval or where appropriate, by a single Commissioner acting as duty officer.

In addition to these immediate actions, I have also spent much of my first week and a half on the job in meetings with my fellow Commissioners and the agency's senior staff to discuss other ways in which we can reinvigorate the SEC's enforcement program, including improving the handling of tips and whistleblower complaints and focusing on areas where investors are most at risk. And I anticipate that we'll be making further improvements in the coming weeks and months to ensure swift and vigorous enforcement.

The staff welcome both of these important changes, and look forward to further improvements in the future.

To review Chairman Schapiro's speech on the Intranet, click here: Schapiro Speech.